Summary – Whereas cryptocurrency emerged outside of the legal framework thus favouring cyber criminality, France has recently set out rules ensuring investors’ and traders’ security.
Far from being a drawback, this set of rules insures the balance between innovation incentive and investor security.
A recent study published by the French AMF underlined the danger of cyber criminality and its impact on the global market.
The AMF targeted especially, bitcoins scams and cyberattacks aiming online platforms trading cryptocurrency.
This cyber criminality is supposed to be one of the most expensive ones worldwide, close to 0.5 % of the world GDP.
Nevertheless, cryptocurrencies continue to attract the interest of private individuals, due to potential gains and due to the lack of state regulation. In the meantime, the extreme instability of the exchange rate and online fraudulent behaviours (especially in the case of alternative cryptocurrency such as altcoins) often prove disastrous for small investors.
To shield investors, the AMF recently published recommendations and warnings for consumers, as well as several blacklists of websites selling cryptocurrencies.
Cryptocurrency is defined by the AMF as “digital asset relying on blockchain technology, through a decentralized registry and an encrypted protocol”.
A digital asset is neither a currency (its value is not determined by a central bank but through supply and demand) nor a financial instrument.
Faced with the multiplication of new digital assets, France (pioneer in this area) has implemented a legal framework for digital assets.
The Law 2019-486 dated 22 May 2019 relating to companies’ growth and transformation (“PACTE Law”) entered into force 24 May 2019, provides for the general definition of digital assets: “a digital representation of value which is not issued nor guaranteed by a central bank nor a public authority, which is not necessarily attached to a currency with an exchange rate and which does not fall within the legal definition of a currency but which is accepted by natural or legal persons as a means of exchange and which can be transferred, stored or traded electronically” (Article L. 54-10-1 of the French Monetary and Financial Code).
Any DASP will need to abide by the legal rules set up by the Monetary and Financial Code and will be placed under the authority of the AMF.
The Digital Assets Services Provides’ new legal status
The PACTE Law defines a DASP as the one providing, amongst others, the following services:
“1° The service of safekeeping digital assets or the access to digital assets (including through the means of private cryptographic keys) for a third party, for the purposes of holding, storing or trading digital assets;
2° The service of purchasing and selling digital assets in exchange for legal tender currencies;
3° The service of trading digital assets for other digital assets;
4° The service of operating a digital platform trading digital assets (…)”
Providers wishing to attract investors can file for registration and/or optional AMF visa.
In which cases is the registration with the AMF mandatory?
Registration is mandatory for two activities:
- The service of safekeeping digital assets;
- The service of purchasing and selling digital assets in exchange for legal tender currencies.
How to register?
Pursuant to article D. 54-10-2 of the Monetary and Financial Code and AMF instruction 2019-23, any supplier wishing to register as digital assets services supplier, will have to submit a registration application file.
The provider will be required to provide certain information relating, amongst others, to the identity, competence and honourability of its officers and shareholding.
The company’s officers are expected to have an experience relating to digital assets, of 6 months minimum, or any equivalent training.
Besides, they must comply with the honourability requirements and must not have been prohibited to practice, according to article L. 500-1 of the Monetary and Financial Code (“MFC).
Information relating to the anti-money laundering and terrorist financing system
The applicant shall provide details relating to its target clients (characteristics, legal nature, geographical aspects, etc.) and the distribution channel planned for each service. If the company belongs to a group, it shall present the group’s organisation chart, indicating in particular the capital links between the various entities of the group and, for each entity, its company name, the country in which its registered office is located and the nature of its business.
It shall provide:
- a classification of the money laundering and terrorist financing risks, in accordance with Article L. 561-4-1 of the MFC, taking into account in particular the risks associated with clients, the nature of the products and services provided, the distribution channels planned and the geographical areas of operation; and, where appropriate,
- the risk classification established at the group level.
One will have to be very careful regarding operations over € 1,000 and operations relating to sums which they know, suspect (or have good reasons for suspecting) are the proceeds of an offence punishable by a custodial sentence of more than one year or are destined for terrorist financing (article L. 561-15 of the MFC).
To this respect, the supplier will be required to provide the name and contact of the persons in charge of reporting the operations to TRACFIN and the devices set up to potentially froze the assets.
What are the delays?
Within 6 months following the filing of the complete documentation by the applicant, the AMF will render its decision.
Within this timeframe, the AMF will consult the Autorité de Contrôle Prudentiel et de Résolution in order to make sure the DASP is compliant with the above-mentioned regulation.
If you provide one or more digital asset services and your company is established in France, you may apply for approval via by the AMF.
This approval is granted for a great number of services, such as safekeeping digital assets, purchasing and selling digital assets in exchange for legal tender currencies, operating a digital platform trading digital assets, etc.
Operators seeking the AMF visa, will be placed under the supervision of the AMF.
The visa procedure before the AMF is similar to the registration one. However, the applicant will have to prove it abides by additional requirements, relating especially to the safety of operations (strengthened internal control, resilient computing security, report of activity for the next two years).
Besides, the applicant will have to provide a professional insurance or a minimum amount of own funds.
To be fully transparent, the DASP will then have to publish, on a regular basis, the volume of transactions and the average price of each transaction.
The publication will have to be made on the operator’s website, no later than the second business day of the following trimester.
Following each procedure, the AMF will publish a list of DASPs which obtained the visa or the registration, for the security of the investors.
Any digital asset supplier has one year to abide by the new requirements set up by the PACTE Law.
The first registration has been delivered by the AMF in March 2020.
The author of this post is Iuliana Babei.